Psak 44 Real Estate Ver171299
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STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
SFAS No.
44 INDONESIAN INSTITUTE OF ACCOUNTANTS ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
SFAS No. 44
Loan expenses Provisions and Allocation Accounting Treatment for Special matters Presentation Disclosures
CONTENTS Paragraphs PREFACE
01 - 05
Objective Scope
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
01 02 – 04
Definitions
05
INTRODUCTION
06 - 63
Recognition of Revenue The sale of houses, shop houses and other buildings of the same type including the land Profit recognition if the full accrual method is not fulfilled The involvement of the seller without the transfer of risk and ownership benefit Sale of condominiums, apartments, office buildings, center and other buildings of the same type and units in time sharing ownership Sale of Land without building The cost components of the Real Estate Development Project Pre-acquisition costs of land Land acquisition costs Expenses directly related to the Project Costs which can be attributed to the Real Estate Development activities
06 - 36 06 - 12 13 - 16 17 - 22 shopping 23 - 32 33 - 36 37 - 48 39 - 41 42 43 44 - 46
SFAS No. 44
47 - 48 49 - 50 51 - 55 56 - 61 62
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
STATEMENT OF THE FINANCIAL ACCOUNTING STANDARD No. 44 ACCOUNTING OF REAL ESTATE EVELOPMENT ACTIVITIES Recognition of Revenue The sale of houses, shophouses and other buildings of the same type including the land Profit recognition if the full accrual method is not fulfilled The involvement of the seller without the transfer of the risks and benefits of ownership Sale of condominiums, apartments, office buildings, shopping centers, and other buildings of the same type and units in time sharing ownership Sale of Land without Building The cost components of the Real Estate Development Project Pre-acquisition costs of land Costs which can be attributed to the Real Estate Development Activities Loan expenses Provisions and Allocation Accounting Treatment for Special Matters Presentation Disclosures Transition Period Effective Date
SFAS No. 44
63 - 96 63 63 - 64 65 - 66 67 - 72 73 - 75 76 - 78 79 - 85 81 82 - 84 85 86 - 87 88 - 89 90 - 93 94 95 96
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
SFAS No. 44
INTRODUCTION Objective 01.
The objective of this standard is to deal with the accounting treatment of transactions specifically related to real estate development activities. Rights of a general nature and matters not dealt with in this standard shall be treated by in accordance with generally accepted accounting principles.
Scope 02.
This standard must be adopted by enterprises carrying out real estate development activities, regardless of whether these activities are the enterprise’s main activity.
03.
This standard is applicable for any financial statements prepared for enterprises carrying out real estate development activities.
04.
This standard does not address real estate constructed by an enterprise for its own use, or for lease to a third party, as such real estates assets are classified as non-current assets. The standard also does not address real estate which constitutes an enterprise’s investments; either as current or long term investments.
Definitions 05.
The following are definitions of terms used in this Standard:
Developer enterprise is an enterprise carrying out real estate development activities. Building unit is a housing property, commercial or industrial property including the land on which it is constructed. Real Estate Development Project is all building units constructed in a geographical area, including vacant land for resale. Real estate unit includes: (i)
units of housing properties, commercial or industrial properties including the land on which it is constructed; and
(ii)
vacant land.
Relative selling price is the ratio of the estimated sale price of each type of real estate unit to the total estimated sales price of all real estate units constructed in a real estate development project. Purchase and sale commitment is a commitment between a buyer and a seller to enter into a purchase and sale agreement in respect of one or more real estate units in the future. As of the date of signing, both parties are bound by this commitment which stipulates the rights and obligations of each party. Purchase and sale agreement is an agreement between a buyer and a seller which stipulates the rights and obligations of each party with respect to one or more real estate units. From the date of signing, the agreement has legal force and the execution of the rights and obligations of each party can be enforced by law.
Real estate development activities are activities of acquiring land and subsequently constructing houses, commercial or industrial buildings. These buildings are intended for sale or lease, either as an integrated unit or on a retail basis. Real estate development activities also include the acquisition of land for resale without construction thereon.
1
c.
Revenue is the gross in-flow of economic benefits resulting from the ordinary activities of an enterprise during a period if such in-flows increase total equity, except for those increases originating from contributions of capital. Profit is the revenue from the sale of building units or from the sale of vacant land less the cost of those sales. EXPLANATION
08.
The sale process is considered complete if the purchase and sale commitment / agreement has become effective, that is if the terms and conditions contained therein have been fulfilled.
09.
A selling price is considered collectible if the total payments made by the buyer is at least 20% of the total agreed selling price, and the amount paid cannot be re-claimed by the buyer.
10.
A receivable becomes subordinated to another loan which is obtained by the buyer in the future if the seller allows the buyer to use the real estate asset sold by him as a first mortgage and his receivable is subordinated to the right of the mortgagor.
11.
The seller is considered to have transferred to the buyer all of the risks and benefits of ownership of the building unit if the seller is no longer involved in the building unit sold and the building unit is ready to be occupied or used.
12.
In a real estate sale transaction the buyer may be given the opportunity to make payments in installments and without interest. If the installment period exceeds 12 months, the revenue from sales must be recognised only at its present value recognizing accrued interest income receivable.
Recognition of Revenue 06.
The sale of houses, shop houses and other buildings of the same type including the land shall be recognized using the full accrual method, if all of the following criteria are satisfied: a. the sale process is complete; b. the selling price is collectible; c. the seller’s receivable will not become subordinated to other loans received by the buyer, and d. the seller has transferred the risks and benefits of ownership of the building unit to the buyer through a transaction which in substance is a sale, and the seller no longer has any obligations or significant involvement in the building unit.
07.
Revenue recognition using the full accrual method shall be made on all sales values in the following manner : a.
Net receivables shall be discounted to their present values using an appropriate interest rate, which should not be lower than the interest rate agreed in the purchase and sale commitment or agreement. The net receivables shall not be discounted if the age of the remaining receivables is less than 12 months; b. A provision is to be made for receivables that are estimated to be non-collectible;
If the seller intends to or has agreed to give a sale discount in the purchase and sale commitment / agreement as an incentive for the buyer for earlier debt settlement, an estimate is required of the amount of discount which will be taken by the buyer and this discount shall be booked at the time of sale. A sale discount which is given instantly or without prior planning shall be charged to the profit and loss account for the period during which the discount is granted.
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payment shall be recognised as revenue at the time of cancellation. At the time the advance payment of the sale of the real estate unit is recognized as revenue, the interest component of the advance payment shall be recognised as interest income.
Profit recognition if the full accrual method is not fulfilled 13.
14.
If a real estate transaction does not satisfy the criteria of profit recognition under the full accrual method as described under paragraph 06, the sale recognition shall be deferred and the transaction shall be recognized using the deposit method until all the criteria for using the full accrual method are satisfied. The application of the deposit method is as follows : the seller does not recognize the revenue from sale of real estate units and any payments received from the buyer shall be recognised as payments received in advance; b. the receivable from the sale of the real estate units is not recognized; c. the real estate units continue to be recognised in the seller's assets; the same applies to the liabilities related to the real estate units, although the liabilities have already been transferred to the buyer; and d. Specifically for real estate units mentioned in paragraph 28, the depreciation of the real estate units shall continue to be recognised by the seller.
The involvement of the seller without the transfer of the risks and benefits of ownership 17.
a.
15.
In the event that the seller has transferred the liabilities related to a real estate unit which it has sold however the transaction has not satisfied the criteria for revenue recognition, the liability cannot be deducted from the carrying value of the related real estate unit recognised by the seller. Installments or settlements paid by the buyer of the liability associated with the real estate unit which has been transferred to the buyer shall be recognised as advance payments by reducing the balance of the related liability. The seller must disclose that the unit is bound by a purchase and sale commitment / agreement.
16.
If a purchase and sale agreement is canceled without the obligation to return the advance payments already received by the seller, the advance
The involvement of the seller without the transfer of the risks and benefits of ownership still exists if : a.
The seller is still significantly involved in the building unit sold and does not transfer, significantly, the risks and benefits of ownership of the building unit sold; b. The seller guarantees the revenue that will be obtained by the buyer from his investment or guarantees the revenues from such an investment for a certain period. c. The seller is obligated to start or support the activities or continues to operate the building unit at his own risk, or can be considered to bear such risk for a certain period. 18.
The seller is not to recognize a sale if there is an obligation to repurchase the building unit sold, or if the buyer can force him to repurchase the building unit. If the seller has the option to repurchase the building unit sold, its treatment is that prescribed in SFAS No. 30, Accounting for Leases, except if the probability of the option being exercised is very low.
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19.
20.
21.
22.
realized. All selling expenses shall be recognized simultaneously with the recognition of the sale, and there are no selling expenses which can be deferred including estimates of expenses to be incurred.
If the purchase and sale commitment / agreement obligates the seller to render after sales management services for the building unit without compensation or with compensation below the normal rate, such compensation shall be estimated for the entire service period and deducted from the recognised revenue as accrued expenses payable. If the seller makes a partial sale, namely the seller owns or acquires the shares of the buyer, profit shall be recognized at the time of sale if the requirements for revenue recognition are satisfied. In this case the profit recognized shall be proportionate to the ownership rights of third parties in the buyer’s enterprise at the time of sale. In the event that the seller controls the buyer, the profit from sale shall not be recognised until the sale is realized through a transaction with a third party, either through a sale or through the operation of the building unit. The sale of building units may cover or may be accompanied by an agreement obligating the seller to develop the real estate in the future and to construct facilities agreed or which are the seller’s obligation to provide. Under such conditions the sale of houses, shop houses and other buildings of the same type, including the associated land, shall be recognized using the full accrual method only if all expenses, including the expenses to provide the agreed or obligated facilities which are the seller’s responsibility notwithstanding that these facilities have not been constructed or completed, are recognised using the accrual method.
SALE OF CONDOMINIUMS, APARTMENTS, OFFICE BUILDINGS, SHOPPING CENTERS, OTHER BUILDINGS OF THE SAME TYPE AND TIME SHARE OWNERSHIP UNITS 23.
The activities of a developer enterprise may cover more than one accounting period. In such circumstances the percentage of completion accounting method is to be used.
24.
Under the percentage of completion method, the amounts of revenue and expenses recognized for each accounting period shall be determined in accordance with the level (percentage) of completion of the building unit. Revenue recognition based on percentage of completion provides the user of the financial statements with useful information, as revenue is recognized in proportion to the expenses incurred to generate that revenue. That is, the use of the percentage of completion method will enable the enterprise to more accurately match revenue against costs incurred to produce that revenue.
25.
The level of completion of a real estate development can be determined using various methods. The enterprise may use methods which could be used to reliably measure the result of the real estate development activity which may be in the form of:
The sale of building units may cover or may be accompanied by an agreement which would enable the seller to share future profits or the salvage value of the building unit. As long as such an agreement is not accompanied by an additional obligation or the risk of losses, no deferral of the recognition of revenue from the sale of the building unit is required if the transaction satisfies all of the criteria for recognition of sales revenue using the full accrual method. Future revenues can only be recognized if the revenues have been
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a. a survey of the work performed; b. the real estate development activity completed up to a certain date in proportion to the total real estate development activities; or c. the costs incurred up to a certain date relative to the estimated total cost of the real estate development. 26.
The sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units shall be recognized using the percentage of completion method if all of the following criteria are satisfied: the construction process has already commenced, that is the building foundations are complete and all of the requirements to commence construction have been fulfilled; b. total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; and c. the amount of revenue and the cost of the building unit can be reliably estimated.
29.
To determine whether the total revenue from the sale of a building unit can be reliably estimated, the following factors must be considered: sales volume, the trend of the sale price of each building unit, the experience of the developer, geographical location and the environmental condition of the building units. Some of the building units may be preferred by the buyer due to location while under other conditions it may be difficult to sell the building unit. This indicates that a certain building unit must be sold at a discount.
30.
The ability to estimate the costs of the building unit (particularly the costs to complete a building unit) is a primary requirement for revenue recognition. Factors in considering whether a developer is able to estimate the cost of the building unit are: the experience of the developer, type of construction contract and the current economic situation which may have an impact on the cost of construction.
31.
The amount of billings to and payments received from the buyer do not reflect the level of completion. Therefore, billings and payments cannot be regarded as the basis for revenue recognition.
32.
The application of the percentage of completion method is subject to the risk of estimation errors. Therefore, the principle of prudence must be followed in estimating revenues and expenses.
a.
27.
If one or more of the criteria mentioned under paragraph 26 are not fulfilled, the payments already received from the buyer shall be recognized as a deposit using the deposit method as described under paragraph 14 until all the criteria are satisfied.
28.
The revenue from the sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units, the construction of which has been completed, shall be recognized using the full accrual method in line with the criteria mentioned under paragraph 06. In this case, the requirements for profit recognition as described under paragraphs 13 - 14 and paragraphs 17 - 22 also apply to the transaction.
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Sale of vacant land 33.
The revenue from the sale of vacant land shall be recognized using the full accrual method at the time of the purchase and sale commitment, if all of the following criteria are satisfied: a.
total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; b. the sale price is collectible; c. the seller’s receivable will not become subordinated to other loans which will be received by the buyer; d. the land development process is complete so that the seller has no further obligations related to the land sold; such as an obligation to improve the land, or to construct facilities as agreed or is the obligation of the seller based on the purchase and sale commitment or the provisions of prevailing law and regulations; and e. only the land is sold; there is no obligation on the seller for involvement in the construction of the building on the land. 34.
35.
The seller’s involvement in the construction may be a provision of the purchase and sale commitment, i.e. whether the seller is obligated to be involved in or responsible for construction. If a purchase and sale commitment was originally for the sale of land and buildings or for the sale of vacant land and that commitment was subsequently changed to the sale of vacant land or the sale of land and buildings, then the accounting treatment of such a transaction shall be based on the first purchase and sale commitment. For purposes of revenue recognition for the sale of vacant land, the seller's obligation to construct the agreed or the obligated facilities is deemed to have been fulfilled if the primary facilities (such as an access road and drainage system) have already been constructed.
36.
If the criteria of revenue recognition for the sale of vacant land using the full accrual method are not satisfied, the sale of vacant land shall be recognized using the deposit method.
The costs components of the Real Estate Development Project 37.
Expenses directly related to real estate development activities and indirect project expenses related to several real estate projects shall be allocated and capitalized to the real estate development projects. Expenses which cannot be identified with a real estate project, such as general and administrative expenses, shall be recorded as expenses in the profit and loss when incurred.
38.
The following real estate development costs shall be capitalized as real estate development project costs: a. b. c. d. e.
pre-acquisition costs of land; land acquisition costs; expenses directly related to a project; expenses attributable to real estate development activities; and loan expenses.
The pre-acquisition costs of land 39.
The pre-acquisition cost of land shall be capitalized as real estate development project costs if the following criteria are satisfied : a. b. c.
the costs are directly identifiable to a certain project; the costs will be capitalized to the real estate development project after the acquisition of the land; and the developer must actively endeavor to acquire the land and is able to finance the purchase or obtain adequate financing.
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40.
The pre-acquisition cost of land covers the expenses incurred before the acquisition of land or until the enterprise obtains the land acquisition permit from the Government. Pre-acquisition costs of land that can be capitalized are expenses related to the land acquisition. The preacquisition costs of land include but are not limited to the following costs: a. b. c. d. e. f.
41.
Cost of obtaining a government permit; legal consulting expenses; feasibility costs; employees’ salaries; costs of environmental impact analysis; and compensation paid to the land affairs expert.
At the time the land is acquired, the pre-acquisition costs of land shall be transferred to the real estate development project. If there is a high probability that the land will not be acquired, the preacquisition costs of land shall be immediately recognized as an expense in the profit and loss.
Land acquisition costs 42.
The land acquisition costs cover the purchase cost of the land, including all costs incurred preparing the land for its stipulated purpose. The land acquisition costs include but are not limited to the following costs: a. b. c. d. e. f. g.
land acquisition costs, including the acquisition cost of buildings (which will not be used), plant and other features of that land; cost of a topographic diagram; cost of master plans; legal document handling expenses; transfer tax; broker’s commission; compensation for professionals such as environmental experts, lawyers, construction engineers, etc.; and
h.
land improvement expenses.
expenses
including
building
demolition
Expenses directly related to the project 43.
Expenses directly related to the project include but are not limited to the following costs: a. b. c. d. e. f. g. h. i.
field workers’ salaries, including supervisors’ salaries; cost of materials used in the project; depreciation of infrastructure and equipment used in the project; mobilization costs of instruments, equipment and materials to and from the project location; rental of instruments and equipment; design and technical expenses directly related to the project; compensation for professionals such as park design experts, environmental experts, architects, construction engineers etc.; costs associated with the purchase and sale commitment; and costs associated with the purchase and sale agreement.
Expenses attributable to real estate development activities Costs which can be attributed to the real estate development activities cover, but are not limited to the following components : a. b. c. d. e. f.
insurance; design and technical assistance expenses which are indirectly related to a certain project; construction overhead expenses; costs of building general infra-structure such as religious places, parks, roads, markets, schools, police stations, hospitals or clinics, cemeteries etc.; compensation for professional services and planning of the entire project; and loan expenses.
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45.
The construction of general facilities which can be commercialized shall be treated in accordance with management’s plan as follows:
Provisions and allocation
a.
49.
The allocation of costs to a real estate development project shall not cease because the realization of future revenue is less than the carrying value of the project. Rather, periodic provisions shall be made for these differences. The total provisions shall reduce the carrying value of the project to its net realizable value and shall be expensed in the profit and loss during the period recognized.
50.
Expenses capitalized for real estate development projects shall be allocated to each real estate unit using a method of identification. If the method of identification cannot be applied, the capitalized expenses shall be allocated based on the ratio of sale prices. If it is not possible to apply the ratio of sale prices, the capitalized expenses shall be allocated based on measurement of the area or another method appropriate for the conditions of the real estate development project. The method chosen must be used on a consistent basis.
If the facilities will be sold or transferred in respect of the sale of existing units, the excess of expenses over the estimated revenue shall be allocated as project expenses. These expenses shall be classified as future operating expenses to be borne by the seller. b. If the facilities will be sold separately or will be owned by the developer, the excess of expenses over the estimated fair value at the time the facilities are substantially completed shall be allocated as project expenses. 46.
The allocation of general facility expenses shall be to the units of land which are to obtain benefits from these facilities. Revenues obtained before the facilities are substantially constructed shall be deducted from the costs of the facilities.
Loan expenses 47.
Loan expenses which can be attributed directly to real estate development activities shall be capitalized to those real estate development projects in accordance with SFAS No. 26, Borrowing Costs.
48.
Due to the long business cycle required to clear land and the development activities carried out at different phases with different levels of development, the seller shall capitalize loan expenses related to development activities. The capitalization of loan expenses shall discontinue at the time the real estate unit is substantially ready for use in accordance with its objective, or if that part that is completed can be used immediately while the other part is still being completed, in accordance with paragraphs 33 and 34 of SFAS No. 26, Borrowing Costs (1997 Revised). Capitalization shall be discontinued if the construction activities are delayed for an extended period of time in accordance with paragraph 32 of SFAS No. 26 Borrowing Costs (1997 Revised).
Accounting treatment for special matters 51.
Cost estimates and allocation must be re-evaluated at the end of each reporting period until the project is substantially complete. If the estimates alter the expenses must be revised and re-allocated.
52.
The revision of estimated costs / revenues which are generally attributed to real estate development activities must be allocated to ongoing and future projects. Revisions resulting from current period and prior period adjustments shall be recognized in the current period profit and loss statement, while revisions related to future periods shall be allocated to the remaining period of development.
53.
If the cancellation of the purchase and sale commitment is probable, an adjustment must be made to revenues previously recognized.
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54.
If a certain project is estimated to generate a loss, a provision must be recognised for the amount of the loss (including expenses to be incurred during the warranty period).
55.
Down payments made for a purchase subsequently canceled, administrative expenses and interest income from buyers, repair expenses (which are not borne by contractors) and maintenance expenses incurred prior to delivery must be recognized directly in the profit and loss statement when incurred.
enterprise whose primary activity is the development of real estate is inappropriate. 61.
Presentation 56.
In presenting the balance sheet of an enterprise carrying out real estate development activities as its primary activity, assets and liabilities are not classified as current and non-current.
57.
In presenting the balance sheet of a enterprise carrying out real estate development activities, but this activity is not its primary activity, real estate assets shall be presented as non-current assets.
58.
The following are types of real estate assets that must be disclosed separately in the notes to the financial statements: a. b. c. d.
Land and buildings; Buildings under construction; Land under development; and Undeveloped land.
59.
Real estate development assets shall be presented separately from real estate assets used by the enterprise on its own behalf which shall be reported as non-current assets.
60.
The normal operating cycle of a developer enterprise is generally longer than one year and is the subject to significant uncertainty. The determination of the normal operating cycle of a developer enterprise is quite often very complicated. Therefore, the requirement to present a balance sheet which classifies balances as current and non-current for an
For an enterprise whose primary activity is not the development of real estate, the presentation of a balance sheet which classifies balances as current and non-current is probably unavoidable. Even in this situation, the uncertainty factor affecting the determination of the normal operating cycle of the real estate development activity exists. For an enterprise whose primary activity is not the development of real estate, this standard requires that the real estate assets be classified as noncurrent assets.
Disclosures 62.
In addition to the disclosures required under the generally accepted accounting standard, the following must be disclosed: a.
The accounting covering:
policy
regarding
revenue
recognition
(i) the revenue recognition method, including the reasons and criteria for using such a method, together with the criteria which will not make it possible to recognize revenue from the sale of the real estate unit using the full accrual method (for the sale of houses, shop houses, other buildings of the same type including land, and for the sale of vacant land); or the percentage of completion method (for the sale of condominiums, apartments, office buildings, shopping centers and other buildings of the same type); (ii) if revenue is recognized using the percentage of completion method, the method of determining the level of completion of the real estate development activities must be disclosed; and
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(iii) the time of the recognition of sale and the revenue from the sale of the real estate. b.
c.
The accounting policy regarding capitalization and allocation method of the costs of the real estate development projects.
64.
The total acquisition cost of real estate assets, the purchase and sale commitment of which has become effective, but the sale has not been recognized including total liability to be transferred, if any.
Revenue recognition using the full accrual method shall be made on all sales values in the following manner : a.
Net receivables shall be discounted to their present values using an appropriate interest rate, which should not be lower than the interest rate agreed in the purchase and sale commitment or agreement. The net receivables shall not be discounted if the age of the remaining receivables is less than 12 months; b. A provision is to be made for receivables that are estimated to be non-collectible; c. If the seller intends to or has agreed to give a sale discount in the purchase and sale committment / agreement as an incentive for the buyer for earlier debt settlement, an estimate is required of the amount of discount which will be taken by the buyer and this discount shall be booked at the time of sale. A sale discount which is given instantly or without prior planning shall be charged to the profit and loss account for the period during which the discount is granted.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD No. 44 ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES This Statements of Financial Accounting Standard No. 44 consists of paragraphs 63 - 96. This statement must be read in the context of paragraphs 01 - 62. Recognition of Revenue The sale of houses, shop houses, other buildings of the same type including the land.
The sale of houses, shop houses and other buildings of the same type including the land shall be recognized using the full accrual method, if all of the following criteria are satisfied: a. the sale process is complete; b. the selling price is collectible; c. the seller’s receivable will not become subordinated to other loans received by the buyer, and d. the seller has transferred the risks and benefits of ownership of the building unit to the buyer through a transaction which in substance is a sale, and the seller no longer has any obligations or significant involvement in the building unit.
If the real estate transaction does not satisfy the criteria for sale recognition, the disclosures shall include: (i) the nature of the transaction; and (ii) total contracts not recognized as sales and unrecognised receivables from buyers.
d.
63.
Profit recognition if the full accrual method is not fulfilled. 65.
If a real estate transaction does not satisfy the criteria of profit recognition under the full accrual method as described under
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paragraph 06, the sale recognition shall be deferred and the transaction shall be recognized using the deposit method until all the criteria for using the full accrual method are satisfied. 66.
The application of the deposit method is as follows : the seller does not recognize the revenue from sale of real estate units and any payments received from the buyer shall be recognized as payments received in advance; b. the receivable from the sale of the real estate units is not recognized; c. the real estate units continue to be recognised in the seller's assets; the same applies to the liabilities related to the real estate units, although the liabilities have already been transferred to the buyer; and d. Specifically for real estate units mentioned in paragraph 28, the depreciation of the real estate units shall continue to be recognized by the seller.
repurchase the building unit. If the seller has the option to repurchase the building unit sold, its treatment is that prescribed in SFAS No. 30, Accounting for Leases, except if the probability of the option being exercised is very low. 69.
If the purchase and sale commitment / agreement obligates the seller to render after sales management services for the building unit without compensation or with compensation below the normal rate, such compensation shall be estimated for the entire service period and deducted from the recognized revenue as accrued expenses payable.
70.
If the seller makes a partial sale, namely the seller owns or acquires the shares of the buyer, profit shall be recognized at the time of sale if the requirements for revenue recognition are satisfied. In this case the profit recognized shall be proportionate to the ownership rights of third parties in the buyer’s enterprise at the time of sale. In the event that the seller controls the buyer, the profit from sale shall not be recognized until the sale is realized through a transaction with a third party, either through a sale or through the operation of the building unit.
71.
The sale of building units may cover or may be accompanied by an agreement obligating the seller to develop the real estate in the future and to construct facilities agreed or which are the seller’s obligation to provide. Under such conditions the sale of houses, shop houses and other buildings of the same type, including the associated land, shall be recognized using the full accrual method only if all expenses, including the expenses to provide the agreed or obligated facilities which are the seller’s responsibility notwithstanding that these facilities have not been constructed or completed, are recognized using the accrual method.
72.
The sale of building units may cover or may be accompanied by an agreement which would enable the seller to share future profits or the salvage value of the building unit. As long as such an agreement is not accompanied by an additional obligation or the risk of losses,
a.
The involvement of the seller without the transfer of the risks and benefits of ownership 67.
The involvement of the seller without the transfer of the risks and benefits of ownership still exists if : a.
The seller is still significantly involved in the building unit sold and does not transfer, significantly, the risks and benefits of ownership of the building unit sold; b. The seller guarantees the revenue that will be obtained by the buyer from his investment or guarantees the revenues from such an investment for a certain period. c. The seller is obligated to start or support the activities or continues to operate the building unit at his own risk, or can be considered to bear such risk for a certain period. 68.
The seller is not to recognize a sale if there is an obligation to repurchase the building unit sold, or if the buyer can force him to
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no deferral of the recognition of revenue from the sale of the building unit is required if the transaction satisfies all of the criteria for recognition of sales revenue using the full accrual method. Future revenues can only be recognized if the revenues have been realized. All selling expenses shall be recognized simultaneously with the recognition of the sale, and there are no selling expenses which can be deferred including estimates of expenses to be incurred..
75.
The revenue from the sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units, the construction of which has been completed, shall be recognized using the full accrual method in line with the criteria mentioned under paragraph 06. In this case, the requirements for profit recognition as described under paragraphs 13 - 14 and paragraphs 17 - 22 also apply to the transaction.
SALE OF CONDOMINIUMS, APARTMENTS, OFFICE BUILDINGS, SHOPPING CENTERS, OTHER BUILDINGS OF THE SAME TYPE AND TIME SHARE OWNERSHIP UNITS 73.
The sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units shall be recognized using the percentage of completion method if all of the following criteria are satisfied: a.
the construction process has already commenced, that is the building foundations are complete and all of the requirements to commence construction have been fulfilled; b. total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; and c. the amount of revenue and the cost of the building unit can be reliably estimated. 74.
If one or more of the criteria mentioned under paragraph 26 are not fulfilled, the payments already received from the buyer shall be recognized as a deposit using the deposit method as described under paragraph 14 until all the criteria are satisfied.
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Sale of vacant land 76.
total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; b. the sale price is collectible; c. the seller’s receivable will not become subordinated to other loans which will be received by the buyer; d. the land development process is complete so that the seller has no further obligations related to the land sold; such as an obligation to improve the land, or to construct facilities as agreed or is the obligation of the seller based on the purchase and sale commitment or the provisions of prevailing law and regulations; and e. only the land is sold; there is no obligation on the seller for involvement in the construction on the land.
78.
Expenses directly related to real estate development activities and indirect project expenses related to several real estate projects shall be allocated and capitalized to the real estate development projects. Expenses which cannot be identified with a real estate project, such as general and administrative expenses, shall be recorded as expenses in the profit and loss when incurred.
80.
The following real estate development costs shall be capitalized as real estate development project costs:
The revenue from the sale of vacant land shall be recognized using the full accrual method at the time of the purchase and sale commitment, if all of the following criteria are satisfied: a.
77.
79.
For purposes of revenue recognition for the sale of vacant land, the seller's obligation to construct the agreed or the obligated facilities is deemed to have been fulfilled if the primary facilities (such as an access road and drainage system) have already been constructed. If the criteria of revenue recognition for the sale of vacant land using the full accrual method are not satisfied, the sale of vacant land shall be recognized using the deposit method.
a. b. c. d. e.
pre-acquisition costs of land; land acquisition costs; expenses directly related to a project; expenses attributable to real estate development activities; and loan expenses.
The pre-acquisition costs of land 81.
At the time the land is acquired, the pre-acquisition costs of land shall be transferred to the real estate development project. If there is a high probability that the land will not be acquired, the preacquisition costs of land shall be immediately recognized as a charge to the profit and loss account.
Expenses attributable to the Real Estate Development Activities 82.
The construction of general facilities which can be commercialized shall be treated in accordance with management’s plan as follows:
The costs components of the Real Estate Development Project
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a.
If the facilities will be sold or transferred in respect of the sale of existing units, the excess of expenses over the estimated revenue shall be allocated as project expenses. These expenses shall be classified as future operating expenses to be borne by the seller. b. If the facilities will be sold separately or will be owned by the developer, the excess of expenses over the estimated fair value at the time the facilities are substantially completed shall be allocated as project expenses. 83.
If the facilities will be sold or transferred in relation to the sale of available units, any excess of costs over the estimated revenues to be obtained shall be allocated as a charge to the project. The expenses include estimated operating expenses in the future which shall be borne by the seller.
84.
If the facilities will be sold separately or will be owned by the developer, any excess of costs over the estimated fair value at the time the facilities are substantially completed physically shall be allocated as a charge to the project.
Provisions and allocation 86.
The allocation of costs to a real estate development project shall not cease because the realization of future revenue is less than the carrying value of the project. Rather, periodic provisions shall be made for these differences. The total provisions shall reduce the carrying value of the project to its net realizable value and shall be expensed in the profit and loss account during the period recognized.
87.
Expenses capitalized for real estate development projects shall be allocated to each real estate unit using a method of identification. If the method of identification cannot be applied, the capitalized expenses shall be allocated based on the ratio of sale prices. If it is not possible to apply the ratio of sale prices, the capitalized expenses shall be allocated based on measurement of the area or another method appropriate for the conditions of the real estate development project. The method chosen must be used on a consistent basis.
Accounting treatment for special matters 88.
Cost estimates and allocation must be re-evaluated at the end of each reporting period until the project is substantially complete. If the estimates alter the expenses must be revised and re-allocated.
89.
If there is a probability of the cancellation of the purchase and sale commitment, adjustment must be made to the revenues already recognized.
Loan expenses 85.
Due to the long business cycle required to clear land and the development activities carried out at different phases with different levels of development, the seller shall capitalize loan expenses related to development activities. The capitalization of loan expenses shall discontinue at the time the real estate unit is substantially ready for use in accordance with its objective, or if that part that is completed can be used immediately while the other part is still being completed, in accordance with paragraphs 33 and 34 of SFAS No. 26, Borrowing Costs (1997 Revised). Capitalization shall be discontinued if the construction activities are delayed for an extended period of time in accordance with paragraph 32 of SFAS No. 26 Borrowing Costs (1997 Revised).
Presentation 90.
In presenting the balance sheet of an enterprise carrying out real estate development activities as its primary activity, assets and liabilities are not classified as current and non-current.
91.
In presenting the balance sheet of a enterprise carrying out real estate development activities, but this activity is not its primary activity, real estate assets shall be presented as non-current assets.
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92.
The following are types of real estate assets that must be disclosed separately in the notes to the financial statements: a. b. c. d.
93.
(iii) the time of the recognition of sale and the revenue from the sale of the real estate.
Land and buildings; Buildings under construction; Land under development; and Undeveloped land
b.
the accounting policy regarding capitalization and allocation method of the costs of the real estate development projects.
c.
if the real estate transaction does not satisfy the criteria for sale recognition, the disclosures shall include:
Real estate development assets shall be presented separately from real estate assets used by the enterprise on its own behalf which shall be reported as non-current assets.
(i) the nature of the transaction; and (ii) total contracts not recognized as sales and unrecognised receivables from buyers.
Disclosures 94.
d.
In addition to the disclosures required under the generally accepted accounting standard, the following must be disclosed: a.
The accounting covering:
policy
regarding
revenue
recognition
(i) the revenue recognition method, including the reasons and criteria for using such a method, together with the criteria which will not make it possible to recognize revenue from the sale of the real estate unit using the full accrual method (for the sale of houses, shop houses, other buildings of the same type including land, and for the sale of vacant land); or the percentage of completion method (for the sale of condominiums, apartments, office buildings, shopping centers and other buildings of the same type);
the total acquisition cost of real estate assets, the purchase and sale commitment of which has become effective, but the sale has not been recognized including total liability to be transferred, if any.
Transition period 95.
Any change in the accounting policy as a result of implementing this standard shall be implemented prospectively
(ii) if revenue is recognized using the percentage of completion method, the method of determining the level of completion of the real estate development activities must be disclosed; and
15
Effective Date 96.
This statement becomes effective for the preparation and presentation of financial statements covering the period beginning with or after 1 January, 1998. Early implementation is encouraged.
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SFAS No.
44 INDONESIAN INSTITUTE OF ACCOUNTANTS ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
SFAS No. 44
Loan expenses Provisions and Allocation Accounting Treatment for Special matters Presentation Disclosures
CONTENTS Paragraphs PREFACE
01 - 05
Objective Scope
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
01 02 – 04
Definitions
05
INTRODUCTION
06 - 63
Recognition of Revenue The sale of houses, shop houses and other buildings of the same type including the land Profit recognition if the full accrual method is not fulfilled The involvement of the seller without the transfer of risk and ownership benefit Sale of condominiums, apartments, office buildings, center and other buildings of the same type and units in time sharing ownership Sale of Land without building The cost components of the Real Estate Development Project Pre-acquisition costs of land Land acquisition costs Expenses directly related to the Project Costs which can be attributed to the Real Estate Development activities
06 - 36 06 - 12 13 - 16 17 - 22 shopping 23 - 32 33 - 36 37 - 48 39 - 41 42 43 44 - 46
SFAS No. 44
47 - 48 49 - 50 51 - 55 56 - 61 62
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
STATEMENT OF THE FINANCIAL ACCOUNTING STANDARD No. 44 ACCOUNTING OF REAL ESTATE EVELOPMENT ACTIVITIES Recognition of Revenue The sale of houses, shophouses and other buildings of the same type including the land Profit recognition if the full accrual method is not fulfilled The involvement of the seller without the transfer of the risks and benefits of ownership Sale of condominiums, apartments, office buildings, shopping centers, and other buildings of the same type and units in time sharing ownership Sale of Land without Building The cost components of the Real Estate Development Project Pre-acquisition costs of land Costs which can be attributed to the Real Estate Development Activities Loan expenses Provisions and Allocation Accounting Treatment for Special Matters Presentation Disclosures Transition Period Effective Date
SFAS No. 44
63 - 96 63 63 - 64 65 - 66 67 - 72 73 - 75 76 - 78 79 - 85 81 82 - 84 85 86 - 87 88 - 89 90 - 93 94 95 96
ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES
SFAS No. 44
INTRODUCTION Objective 01.
The objective of this standard is to deal with the accounting treatment of transactions specifically related to real estate development activities. Rights of a general nature and matters not dealt with in this standard shall be treated by in accordance with generally accepted accounting principles.
Scope 02.
This standard must be adopted by enterprises carrying out real estate development activities, regardless of whether these activities are the enterprise’s main activity.
03.
This standard is applicable for any financial statements prepared for enterprises carrying out real estate development activities.
04.
This standard does not address real estate constructed by an enterprise for its own use, or for lease to a third party, as such real estates assets are classified as non-current assets. The standard also does not address real estate which constitutes an enterprise’s investments; either as current or long term investments.
Definitions 05.
The following are definitions of terms used in this Standard:
Developer enterprise is an enterprise carrying out real estate development activities. Building unit is a housing property, commercial or industrial property including the land on which it is constructed. Real Estate Development Project is all building units constructed in a geographical area, including vacant land for resale. Real estate unit includes: (i)
units of housing properties, commercial or industrial properties including the land on which it is constructed; and
(ii)
vacant land.
Relative selling price is the ratio of the estimated sale price of each type of real estate unit to the total estimated sales price of all real estate units constructed in a real estate development project. Purchase and sale commitment is a commitment between a buyer and a seller to enter into a purchase and sale agreement in respect of one or more real estate units in the future. As of the date of signing, both parties are bound by this commitment which stipulates the rights and obligations of each party. Purchase and sale agreement is an agreement between a buyer and a seller which stipulates the rights and obligations of each party with respect to one or more real estate units. From the date of signing, the agreement has legal force and the execution of the rights and obligations of each party can be enforced by law.
Real estate development activities are activities of acquiring land and subsequently constructing houses, commercial or industrial buildings. These buildings are intended for sale or lease, either as an integrated unit or on a retail basis. Real estate development activities also include the acquisition of land for resale without construction thereon.
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c.
Revenue is the gross in-flow of economic benefits resulting from the ordinary activities of an enterprise during a period if such in-flows increase total equity, except for those increases originating from contributions of capital. Profit is the revenue from the sale of building units or from the sale of vacant land less the cost of those sales. EXPLANATION
08.
The sale process is considered complete if the purchase and sale commitment / agreement has become effective, that is if the terms and conditions contained therein have been fulfilled.
09.
A selling price is considered collectible if the total payments made by the buyer is at least 20% of the total agreed selling price, and the amount paid cannot be re-claimed by the buyer.
10.
A receivable becomes subordinated to another loan which is obtained by the buyer in the future if the seller allows the buyer to use the real estate asset sold by him as a first mortgage and his receivable is subordinated to the right of the mortgagor.
11.
The seller is considered to have transferred to the buyer all of the risks and benefits of ownership of the building unit if the seller is no longer involved in the building unit sold and the building unit is ready to be occupied or used.
12.
In a real estate sale transaction the buyer may be given the opportunity to make payments in installments and without interest. If the installment period exceeds 12 months, the revenue from sales must be recognised only at its present value recognizing accrued interest income receivable.
Recognition of Revenue 06.
The sale of houses, shop houses and other buildings of the same type including the land shall be recognized using the full accrual method, if all of the following criteria are satisfied: a. the sale process is complete; b. the selling price is collectible; c. the seller’s receivable will not become subordinated to other loans received by the buyer, and d. the seller has transferred the risks and benefits of ownership of the building unit to the buyer through a transaction which in substance is a sale, and the seller no longer has any obligations or significant involvement in the building unit.
07.
Revenue recognition using the full accrual method shall be made on all sales values in the following manner : a.
Net receivables shall be discounted to their present values using an appropriate interest rate, which should not be lower than the interest rate agreed in the purchase and sale commitment or agreement. The net receivables shall not be discounted if the age of the remaining receivables is less than 12 months; b. A provision is to be made for receivables that are estimated to be non-collectible;
If the seller intends to or has agreed to give a sale discount in the purchase and sale commitment / agreement as an incentive for the buyer for earlier debt settlement, an estimate is required of the amount of discount which will be taken by the buyer and this discount shall be booked at the time of sale. A sale discount which is given instantly or without prior planning shall be charged to the profit and loss account for the period during which the discount is granted.
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payment shall be recognised as revenue at the time of cancellation. At the time the advance payment of the sale of the real estate unit is recognized as revenue, the interest component of the advance payment shall be recognised as interest income.
Profit recognition if the full accrual method is not fulfilled 13.
14.
If a real estate transaction does not satisfy the criteria of profit recognition under the full accrual method as described under paragraph 06, the sale recognition shall be deferred and the transaction shall be recognized using the deposit method until all the criteria for using the full accrual method are satisfied. The application of the deposit method is as follows : the seller does not recognize the revenue from sale of real estate units and any payments received from the buyer shall be recognised as payments received in advance; b. the receivable from the sale of the real estate units is not recognized; c. the real estate units continue to be recognised in the seller's assets; the same applies to the liabilities related to the real estate units, although the liabilities have already been transferred to the buyer; and d. Specifically for real estate units mentioned in paragraph 28, the depreciation of the real estate units shall continue to be recognised by the seller.
The involvement of the seller without the transfer of the risks and benefits of ownership 17.
a.
15.
In the event that the seller has transferred the liabilities related to a real estate unit which it has sold however the transaction has not satisfied the criteria for revenue recognition, the liability cannot be deducted from the carrying value of the related real estate unit recognised by the seller. Installments or settlements paid by the buyer of the liability associated with the real estate unit which has been transferred to the buyer shall be recognised as advance payments by reducing the balance of the related liability. The seller must disclose that the unit is bound by a purchase and sale commitment / agreement.
16.
If a purchase and sale agreement is canceled without the obligation to return the advance payments already received by the seller, the advance
The involvement of the seller without the transfer of the risks and benefits of ownership still exists if : a.
The seller is still significantly involved in the building unit sold and does not transfer, significantly, the risks and benefits of ownership of the building unit sold; b. The seller guarantees the revenue that will be obtained by the buyer from his investment or guarantees the revenues from such an investment for a certain period. c. The seller is obligated to start or support the activities or continues to operate the building unit at his own risk, or can be considered to bear such risk for a certain period. 18.
The seller is not to recognize a sale if there is an obligation to repurchase the building unit sold, or if the buyer can force him to repurchase the building unit. If the seller has the option to repurchase the building unit sold, its treatment is that prescribed in SFAS No. 30, Accounting for Leases, except if the probability of the option being exercised is very low.
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19.
20.
21.
22.
realized. All selling expenses shall be recognized simultaneously with the recognition of the sale, and there are no selling expenses which can be deferred including estimates of expenses to be incurred.
If the purchase and sale commitment / agreement obligates the seller to render after sales management services for the building unit without compensation or with compensation below the normal rate, such compensation shall be estimated for the entire service period and deducted from the recognised revenue as accrued expenses payable. If the seller makes a partial sale, namely the seller owns or acquires the shares of the buyer, profit shall be recognized at the time of sale if the requirements for revenue recognition are satisfied. In this case the profit recognized shall be proportionate to the ownership rights of third parties in the buyer’s enterprise at the time of sale. In the event that the seller controls the buyer, the profit from sale shall not be recognised until the sale is realized through a transaction with a third party, either through a sale or through the operation of the building unit. The sale of building units may cover or may be accompanied by an agreement obligating the seller to develop the real estate in the future and to construct facilities agreed or which are the seller’s obligation to provide. Under such conditions the sale of houses, shop houses and other buildings of the same type, including the associated land, shall be recognized using the full accrual method only if all expenses, including the expenses to provide the agreed or obligated facilities which are the seller’s responsibility notwithstanding that these facilities have not been constructed or completed, are recognised using the accrual method.
SALE OF CONDOMINIUMS, APARTMENTS, OFFICE BUILDINGS, SHOPPING CENTERS, OTHER BUILDINGS OF THE SAME TYPE AND TIME SHARE OWNERSHIP UNITS 23.
The activities of a developer enterprise may cover more than one accounting period. In such circumstances the percentage of completion accounting method is to be used.
24.
Under the percentage of completion method, the amounts of revenue and expenses recognized for each accounting period shall be determined in accordance with the level (percentage) of completion of the building unit. Revenue recognition based on percentage of completion provides the user of the financial statements with useful information, as revenue is recognized in proportion to the expenses incurred to generate that revenue. That is, the use of the percentage of completion method will enable the enterprise to more accurately match revenue against costs incurred to produce that revenue.
25.
The level of completion of a real estate development can be determined using various methods. The enterprise may use methods which could be used to reliably measure the result of the real estate development activity which may be in the form of:
The sale of building units may cover or may be accompanied by an agreement which would enable the seller to share future profits or the salvage value of the building unit. As long as such an agreement is not accompanied by an additional obligation or the risk of losses, no deferral of the recognition of revenue from the sale of the building unit is required if the transaction satisfies all of the criteria for recognition of sales revenue using the full accrual method. Future revenues can only be recognized if the revenues have been
4
a. a survey of the work performed; b. the real estate development activity completed up to a certain date in proportion to the total real estate development activities; or c. the costs incurred up to a certain date relative to the estimated total cost of the real estate development. 26.
The sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units shall be recognized using the percentage of completion method if all of the following criteria are satisfied: the construction process has already commenced, that is the building foundations are complete and all of the requirements to commence construction have been fulfilled; b. total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; and c. the amount of revenue and the cost of the building unit can be reliably estimated.
29.
To determine whether the total revenue from the sale of a building unit can be reliably estimated, the following factors must be considered: sales volume, the trend of the sale price of each building unit, the experience of the developer, geographical location and the environmental condition of the building units. Some of the building units may be preferred by the buyer due to location while under other conditions it may be difficult to sell the building unit. This indicates that a certain building unit must be sold at a discount.
30.
The ability to estimate the costs of the building unit (particularly the costs to complete a building unit) is a primary requirement for revenue recognition. Factors in considering whether a developer is able to estimate the cost of the building unit are: the experience of the developer, type of construction contract and the current economic situation which may have an impact on the cost of construction.
31.
The amount of billings to and payments received from the buyer do not reflect the level of completion. Therefore, billings and payments cannot be regarded as the basis for revenue recognition.
32.
The application of the percentage of completion method is subject to the risk of estimation errors. Therefore, the principle of prudence must be followed in estimating revenues and expenses.
a.
27.
If one or more of the criteria mentioned under paragraph 26 are not fulfilled, the payments already received from the buyer shall be recognized as a deposit using the deposit method as described under paragraph 14 until all the criteria are satisfied.
28.
The revenue from the sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units, the construction of which has been completed, shall be recognized using the full accrual method in line with the criteria mentioned under paragraph 06. In this case, the requirements for profit recognition as described under paragraphs 13 - 14 and paragraphs 17 - 22 also apply to the transaction.
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Sale of vacant land 33.
The revenue from the sale of vacant land shall be recognized using the full accrual method at the time of the purchase and sale commitment, if all of the following criteria are satisfied: a.
total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; b. the sale price is collectible; c. the seller’s receivable will not become subordinated to other loans which will be received by the buyer; d. the land development process is complete so that the seller has no further obligations related to the land sold; such as an obligation to improve the land, or to construct facilities as agreed or is the obligation of the seller based on the purchase and sale commitment or the provisions of prevailing law and regulations; and e. only the land is sold; there is no obligation on the seller for involvement in the construction of the building on the land. 34.
35.
The seller’s involvement in the construction may be a provision of the purchase and sale commitment, i.e. whether the seller is obligated to be involved in or responsible for construction. If a purchase and sale commitment was originally for the sale of land and buildings or for the sale of vacant land and that commitment was subsequently changed to the sale of vacant land or the sale of land and buildings, then the accounting treatment of such a transaction shall be based on the first purchase and sale commitment. For purposes of revenue recognition for the sale of vacant land, the seller's obligation to construct the agreed or the obligated facilities is deemed to have been fulfilled if the primary facilities (such as an access road and drainage system) have already been constructed.
36.
If the criteria of revenue recognition for the sale of vacant land using the full accrual method are not satisfied, the sale of vacant land shall be recognized using the deposit method.
The costs components of the Real Estate Development Project 37.
Expenses directly related to real estate development activities and indirect project expenses related to several real estate projects shall be allocated and capitalized to the real estate development projects. Expenses which cannot be identified with a real estate project, such as general and administrative expenses, shall be recorded as expenses in the profit and loss when incurred.
38.
The following real estate development costs shall be capitalized as real estate development project costs: a. b. c. d. e.
pre-acquisition costs of land; land acquisition costs; expenses directly related to a project; expenses attributable to real estate development activities; and loan expenses.
The pre-acquisition costs of land 39.
The pre-acquisition cost of land shall be capitalized as real estate development project costs if the following criteria are satisfied : a. b. c.
the costs are directly identifiable to a certain project; the costs will be capitalized to the real estate development project after the acquisition of the land; and the developer must actively endeavor to acquire the land and is able to finance the purchase or obtain adequate financing.
6
40.
The pre-acquisition cost of land covers the expenses incurred before the acquisition of land or until the enterprise obtains the land acquisition permit from the Government. Pre-acquisition costs of land that can be capitalized are expenses related to the land acquisition. The preacquisition costs of land include but are not limited to the following costs: a. b. c. d. e. f.
41.
Cost of obtaining a government permit; legal consulting expenses; feasibility costs; employees’ salaries; costs of environmental impact analysis; and compensation paid to the land affairs expert.
At the time the land is acquired, the pre-acquisition costs of land shall be transferred to the real estate development project. If there is a high probability that the land will not be acquired, the preacquisition costs of land shall be immediately recognized as an expense in the profit and loss.
Land acquisition costs 42.
The land acquisition costs cover the purchase cost of the land, including all costs incurred preparing the land for its stipulated purpose. The land acquisition costs include but are not limited to the following costs: a. b. c. d. e. f. g.
land acquisition costs, including the acquisition cost of buildings (which will not be used), plant and other features of that land; cost of a topographic diagram; cost of master plans; legal document handling expenses; transfer tax; broker’s commission; compensation for professionals such as environmental experts, lawyers, construction engineers, etc.; and
h.
land improvement expenses.
expenses
including
building
demolition
Expenses directly related to the project 43.
Expenses directly related to the project include but are not limited to the following costs: a. b. c. d. e. f. g. h. i.
field workers’ salaries, including supervisors’ salaries; cost of materials used in the project; depreciation of infrastructure and equipment used in the project; mobilization costs of instruments, equipment and materials to and from the project location; rental of instruments and equipment; design and technical expenses directly related to the project; compensation for professionals such as park design experts, environmental experts, architects, construction engineers etc.; costs associated with the purchase and sale commitment; and costs associated with the purchase and sale agreement.
Expenses attributable to real estate development activities Costs which can be attributed to the real estate development activities cover, but are not limited to the following components : a. b. c. d. e. f.
insurance; design and technical assistance expenses which are indirectly related to a certain project; construction overhead expenses; costs of building general infra-structure such as religious places, parks, roads, markets, schools, police stations, hospitals or clinics, cemeteries etc.; compensation for professional services and planning of the entire project; and loan expenses.
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45.
The construction of general facilities which can be commercialized shall be treated in accordance with management’s plan as follows:
Provisions and allocation
a.
49.
The allocation of costs to a real estate development project shall not cease because the realization of future revenue is less than the carrying value of the project. Rather, periodic provisions shall be made for these differences. The total provisions shall reduce the carrying value of the project to its net realizable value and shall be expensed in the profit and loss during the period recognized.
50.
Expenses capitalized for real estate development projects shall be allocated to each real estate unit using a method of identification. If the method of identification cannot be applied, the capitalized expenses shall be allocated based on the ratio of sale prices. If it is not possible to apply the ratio of sale prices, the capitalized expenses shall be allocated based on measurement of the area or another method appropriate for the conditions of the real estate development project. The method chosen must be used on a consistent basis.
If the facilities will be sold or transferred in respect of the sale of existing units, the excess of expenses over the estimated revenue shall be allocated as project expenses. These expenses shall be classified as future operating expenses to be borne by the seller. b. If the facilities will be sold separately or will be owned by the developer, the excess of expenses over the estimated fair value at the time the facilities are substantially completed shall be allocated as project expenses. 46.
The allocation of general facility expenses shall be to the units of land which are to obtain benefits from these facilities. Revenues obtained before the facilities are substantially constructed shall be deducted from the costs of the facilities.
Loan expenses 47.
Loan expenses which can be attributed directly to real estate development activities shall be capitalized to those real estate development projects in accordance with SFAS No. 26, Borrowing Costs.
48.
Due to the long business cycle required to clear land and the development activities carried out at different phases with different levels of development, the seller shall capitalize loan expenses related to development activities. The capitalization of loan expenses shall discontinue at the time the real estate unit is substantially ready for use in accordance with its objective, or if that part that is completed can be used immediately while the other part is still being completed, in accordance with paragraphs 33 and 34 of SFAS No. 26, Borrowing Costs (1997 Revised). Capitalization shall be discontinued if the construction activities are delayed for an extended period of time in accordance with paragraph 32 of SFAS No. 26 Borrowing Costs (1997 Revised).
Accounting treatment for special matters 51.
Cost estimates and allocation must be re-evaluated at the end of each reporting period until the project is substantially complete. If the estimates alter the expenses must be revised and re-allocated.
52.
The revision of estimated costs / revenues which are generally attributed to real estate development activities must be allocated to ongoing and future projects. Revisions resulting from current period and prior period adjustments shall be recognized in the current period profit and loss statement, while revisions related to future periods shall be allocated to the remaining period of development.
53.
If the cancellation of the purchase and sale commitment is probable, an adjustment must be made to revenues previously recognized.
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54.
If a certain project is estimated to generate a loss, a provision must be recognised for the amount of the loss (including expenses to be incurred during the warranty period).
55.
Down payments made for a purchase subsequently canceled, administrative expenses and interest income from buyers, repair expenses (which are not borne by contractors) and maintenance expenses incurred prior to delivery must be recognized directly in the profit and loss statement when incurred.
enterprise whose primary activity is the development of real estate is inappropriate. 61.
Presentation 56.
In presenting the balance sheet of an enterprise carrying out real estate development activities as its primary activity, assets and liabilities are not classified as current and non-current.
57.
In presenting the balance sheet of a enterprise carrying out real estate development activities, but this activity is not its primary activity, real estate assets shall be presented as non-current assets.
58.
The following are types of real estate assets that must be disclosed separately in the notes to the financial statements: a. b. c. d.
Land and buildings; Buildings under construction; Land under development; and Undeveloped land.
59.
Real estate development assets shall be presented separately from real estate assets used by the enterprise on its own behalf which shall be reported as non-current assets.
60.
The normal operating cycle of a developer enterprise is generally longer than one year and is the subject to significant uncertainty. The determination of the normal operating cycle of a developer enterprise is quite often very complicated. Therefore, the requirement to present a balance sheet which classifies balances as current and non-current for an
For an enterprise whose primary activity is not the development of real estate, the presentation of a balance sheet which classifies balances as current and non-current is probably unavoidable. Even in this situation, the uncertainty factor affecting the determination of the normal operating cycle of the real estate development activity exists. For an enterprise whose primary activity is not the development of real estate, this standard requires that the real estate assets be classified as noncurrent assets.
Disclosures 62.
In addition to the disclosures required under the generally accepted accounting standard, the following must be disclosed: a.
The accounting covering:
policy
regarding
revenue
recognition
(i) the revenue recognition method, including the reasons and criteria for using such a method, together with the criteria which will not make it possible to recognize revenue from the sale of the real estate unit using the full accrual method (for the sale of houses, shop houses, other buildings of the same type including land, and for the sale of vacant land); or the percentage of completion method (for the sale of condominiums, apartments, office buildings, shopping centers and other buildings of the same type); (ii) if revenue is recognized using the percentage of completion method, the method of determining the level of completion of the real estate development activities must be disclosed; and
9
(iii) the time of the recognition of sale and the revenue from the sale of the real estate. b.
c.
The accounting policy regarding capitalization and allocation method of the costs of the real estate development projects.
64.
The total acquisition cost of real estate assets, the purchase and sale commitment of which has become effective, but the sale has not been recognized including total liability to be transferred, if any.
Revenue recognition using the full accrual method shall be made on all sales values in the following manner : a.
Net receivables shall be discounted to their present values using an appropriate interest rate, which should not be lower than the interest rate agreed in the purchase and sale commitment or agreement. The net receivables shall not be discounted if the age of the remaining receivables is less than 12 months; b. A provision is to be made for receivables that are estimated to be non-collectible; c. If the seller intends to or has agreed to give a sale discount in the purchase and sale committment / agreement as an incentive for the buyer for earlier debt settlement, an estimate is required of the amount of discount which will be taken by the buyer and this discount shall be booked at the time of sale. A sale discount which is given instantly or without prior planning shall be charged to the profit and loss account for the period during which the discount is granted.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD No. 44 ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES This Statements of Financial Accounting Standard No. 44 consists of paragraphs 63 - 96. This statement must be read in the context of paragraphs 01 - 62. Recognition of Revenue The sale of houses, shop houses, other buildings of the same type including the land.
The sale of houses, shop houses and other buildings of the same type including the land shall be recognized using the full accrual method, if all of the following criteria are satisfied: a. the sale process is complete; b. the selling price is collectible; c. the seller’s receivable will not become subordinated to other loans received by the buyer, and d. the seller has transferred the risks and benefits of ownership of the building unit to the buyer through a transaction which in substance is a sale, and the seller no longer has any obligations or significant involvement in the building unit.
If the real estate transaction does not satisfy the criteria for sale recognition, the disclosures shall include: (i) the nature of the transaction; and (ii) total contracts not recognized as sales and unrecognised receivables from buyers.
d.
63.
Profit recognition if the full accrual method is not fulfilled. 65.
If a real estate transaction does not satisfy the criteria of profit recognition under the full accrual method as described under
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paragraph 06, the sale recognition shall be deferred and the transaction shall be recognized using the deposit method until all the criteria for using the full accrual method are satisfied. 66.
The application of the deposit method is as follows : the seller does not recognize the revenue from sale of real estate units and any payments received from the buyer shall be recognized as payments received in advance; b. the receivable from the sale of the real estate units is not recognized; c. the real estate units continue to be recognised in the seller's assets; the same applies to the liabilities related to the real estate units, although the liabilities have already been transferred to the buyer; and d. Specifically for real estate units mentioned in paragraph 28, the depreciation of the real estate units shall continue to be recognized by the seller.
repurchase the building unit. If the seller has the option to repurchase the building unit sold, its treatment is that prescribed in SFAS No. 30, Accounting for Leases, except if the probability of the option being exercised is very low. 69.
If the purchase and sale commitment / agreement obligates the seller to render after sales management services for the building unit without compensation or with compensation below the normal rate, such compensation shall be estimated for the entire service period and deducted from the recognized revenue as accrued expenses payable.
70.
If the seller makes a partial sale, namely the seller owns or acquires the shares of the buyer, profit shall be recognized at the time of sale if the requirements for revenue recognition are satisfied. In this case the profit recognized shall be proportionate to the ownership rights of third parties in the buyer’s enterprise at the time of sale. In the event that the seller controls the buyer, the profit from sale shall not be recognized until the sale is realized through a transaction with a third party, either through a sale or through the operation of the building unit.
71.
The sale of building units may cover or may be accompanied by an agreement obligating the seller to develop the real estate in the future and to construct facilities agreed or which are the seller’s obligation to provide. Under such conditions the sale of houses, shop houses and other buildings of the same type, including the associated land, shall be recognized using the full accrual method only if all expenses, including the expenses to provide the agreed or obligated facilities which are the seller’s responsibility notwithstanding that these facilities have not been constructed or completed, are recognized using the accrual method.
72.
The sale of building units may cover or may be accompanied by an agreement which would enable the seller to share future profits or the salvage value of the building unit. As long as such an agreement is not accompanied by an additional obligation or the risk of losses,
a.
The involvement of the seller without the transfer of the risks and benefits of ownership 67.
The involvement of the seller without the transfer of the risks and benefits of ownership still exists if : a.
The seller is still significantly involved in the building unit sold and does not transfer, significantly, the risks and benefits of ownership of the building unit sold; b. The seller guarantees the revenue that will be obtained by the buyer from his investment or guarantees the revenues from such an investment for a certain period. c. The seller is obligated to start or support the activities or continues to operate the building unit at his own risk, or can be considered to bear such risk for a certain period. 68.
The seller is not to recognize a sale if there is an obligation to repurchase the building unit sold, or if the buyer can force him to
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no deferral of the recognition of revenue from the sale of the building unit is required if the transaction satisfies all of the criteria for recognition of sales revenue using the full accrual method. Future revenues can only be recognized if the revenues have been realized. All selling expenses shall be recognized simultaneously with the recognition of the sale, and there are no selling expenses which can be deferred including estimates of expenses to be incurred..
75.
The revenue from the sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units, the construction of which has been completed, shall be recognized using the full accrual method in line with the criteria mentioned under paragraph 06. In this case, the requirements for profit recognition as described under paragraphs 13 - 14 and paragraphs 17 - 22 also apply to the transaction.
SALE OF CONDOMINIUMS, APARTMENTS, OFFICE BUILDINGS, SHOPPING CENTERS, OTHER BUILDINGS OF THE SAME TYPE AND TIME SHARE OWNERSHIP UNITS 73.
The sale of condominiums, apartments, office buildings, shopping centers, other buildings of the same type and time share ownership units shall be recognized using the percentage of completion method if all of the following criteria are satisfied: a.
the construction process has already commenced, that is the building foundations are complete and all of the requirements to commence construction have been fulfilled; b. total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; and c. the amount of revenue and the cost of the building unit can be reliably estimated. 74.
If one or more of the criteria mentioned under paragraph 26 are not fulfilled, the payments already received from the buyer shall be recognized as a deposit using the deposit method as described under paragraph 14 until all the criteria are satisfied.
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Sale of vacant land 76.
total payments by the buyer is at least 20% of the agreed sale price and that amount cannot be re-claimed by the buyer; b. the sale price is collectible; c. the seller’s receivable will not become subordinated to other loans which will be received by the buyer; d. the land development process is complete so that the seller has no further obligations related to the land sold; such as an obligation to improve the land, or to construct facilities as agreed or is the obligation of the seller based on the purchase and sale commitment or the provisions of prevailing law and regulations; and e. only the land is sold; there is no obligation on the seller for involvement in the construction on the land.
78.
Expenses directly related to real estate development activities and indirect project expenses related to several real estate projects shall be allocated and capitalized to the real estate development projects. Expenses which cannot be identified with a real estate project, such as general and administrative expenses, shall be recorded as expenses in the profit and loss when incurred.
80.
The following real estate development costs shall be capitalized as real estate development project costs:
The revenue from the sale of vacant land shall be recognized using the full accrual method at the time of the purchase and sale commitment, if all of the following criteria are satisfied: a.
77.
79.
For purposes of revenue recognition for the sale of vacant land, the seller's obligation to construct the agreed or the obligated facilities is deemed to have been fulfilled if the primary facilities (such as an access road and drainage system) have already been constructed. If the criteria of revenue recognition for the sale of vacant land using the full accrual method are not satisfied, the sale of vacant land shall be recognized using the deposit method.
a. b. c. d. e.
pre-acquisition costs of land; land acquisition costs; expenses directly related to a project; expenses attributable to real estate development activities; and loan expenses.
The pre-acquisition costs of land 81.
At the time the land is acquired, the pre-acquisition costs of land shall be transferred to the real estate development project. If there is a high probability that the land will not be acquired, the preacquisition costs of land shall be immediately recognized as a charge to the profit and loss account.
Expenses attributable to the Real Estate Development Activities 82.
The construction of general facilities which can be commercialized shall be treated in accordance with management’s plan as follows:
The costs components of the Real Estate Development Project
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a.
If the facilities will be sold or transferred in respect of the sale of existing units, the excess of expenses over the estimated revenue shall be allocated as project expenses. These expenses shall be classified as future operating expenses to be borne by the seller. b. If the facilities will be sold separately or will be owned by the developer, the excess of expenses over the estimated fair value at the time the facilities are substantially completed shall be allocated as project expenses. 83.
If the facilities will be sold or transferred in relation to the sale of available units, any excess of costs over the estimated revenues to be obtained shall be allocated as a charge to the project. The expenses include estimated operating expenses in the future which shall be borne by the seller.
84.
If the facilities will be sold separately or will be owned by the developer, any excess of costs over the estimated fair value at the time the facilities are substantially completed physically shall be allocated as a charge to the project.
Provisions and allocation 86.
The allocation of costs to a real estate development project shall not cease because the realization of future revenue is less than the carrying value of the project. Rather, periodic provisions shall be made for these differences. The total provisions shall reduce the carrying value of the project to its net realizable value and shall be expensed in the profit and loss account during the period recognized.
87.
Expenses capitalized for real estate development projects shall be allocated to each real estate unit using a method of identification. If the method of identification cannot be applied, the capitalized expenses shall be allocated based on the ratio of sale prices. If it is not possible to apply the ratio of sale prices, the capitalized expenses shall be allocated based on measurement of the area or another method appropriate for the conditions of the real estate development project. The method chosen must be used on a consistent basis.
Accounting treatment for special matters 88.
Cost estimates and allocation must be re-evaluated at the end of each reporting period until the project is substantially complete. If the estimates alter the expenses must be revised and re-allocated.
89.
If there is a probability of the cancellation of the purchase and sale commitment, adjustment must be made to the revenues already recognized.
Loan expenses 85.
Due to the long business cycle required to clear land and the development activities carried out at different phases with different levels of development, the seller shall capitalize loan expenses related to development activities. The capitalization of loan expenses shall discontinue at the time the real estate unit is substantially ready for use in accordance with its objective, or if that part that is completed can be used immediately while the other part is still being completed, in accordance with paragraphs 33 and 34 of SFAS No. 26, Borrowing Costs (1997 Revised). Capitalization shall be discontinued if the construction activities are delayed for an extended period of time in accordance with paragraph 32 of SFAS No. 26 Borrowing Costs (1997 Revised).
Presentation 90.
In presenting the balance sheet of an enterprise carrying out real estate development activities as its primary activity, assets and liabilities are not classified as current and non-current.
91.
In presenting the balance sheet of a enterprise carrying out real estate development activities, but this activity is not its primary activity, real estate assets shall be presented as non-current assets.
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92.
The following are types of real estate assets that must be disclosed separately in the notes to the financial statements: a. b. c. d.
93.
(iii) the time of the recognition of sale and the revenue from the sale of the real estate.
Land and buildings; Buildings under construction; Land under development; and Undeveloped land
b.
the accounting policy regarding capitalization and allocation method of the costs of the real estate development projects.
c.
if the real estate transaction does not satisfy the criteria for sale recognition, the disclosures shall include:
Real estate development assets shall be presented separately from real estate assets used by the enterprise on its own behalf which shall be reported as non-current assets.
(i) the nature of the transaction; and (ii) total contracts not recognized as sales and unrecognised receivables from buyers.
Disclosures 94.
d.
In addition to the disclosures required under the generally accepted accounting standard, the following must be disclosed: a.
The accounting covering:
policy
regarding
revenue
recognition
(i) the revenue recognition method, including the reasons and criteria for using such a method, together with the criteria which will not make it possible to recognize revenue from the sale of the real estate unit using the full accrual method (for the sale of houses, shop houses, other buildings of the same type including land, and for the sale of vacant land); or the percentage of completion method (for the sale of condominiums, apartments, office buildings, shopping centers and other buildings of the same type);
the total acquisition cost of real estate assets, the purchase and sale commitment of which has become effective, but the sale has not been recognized including total liability to be transferred, if any.
Transition period 95.
Any change in the accounting policy as a result of implementing this standard shall be implemented prospectively
(ii) if revenue is recognized using the percentage of completion method, the method of determining the level of completion of the real estate development activities must be disclosed; and
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Effective Date 96.
This statement becomes effective for the preparation and presentation of financial statements covering the period beginning with or after 1 January, 1998. Early implementation is encouraged.
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